Albany International Corp (AIN) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Albany International fourth quarter earnings call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (OPERATOR INSTRUCTIONS). At the request of Albany International, this conference on Monday, February 11, 2008, will be webcast and recorded. I would now like to turn the conference over to the Executive Vice President and Chief Financial Officer, Mr. Michael Nahl. Please go ahead, sir.

Thank you very much, Art. Good morning. Just a reminder that the comment about forward-looking references in the financial release also applies to the contents of this call.

Before we begin, I would like to point out a small error in the earnings release. In the table on the bottom of page three, PMC operating income for the third quarter of 2006 should read 23,799 rather than 20,424 as shown. Remember that these numbers are in thousands. That also results in a mistake on page six in the middle paragraph, where the third line refers to a 21% increase in operating income Q4 to Q4. This should instead be 7%. Those are not restatements of 2006 results, but are corrections to this release, since the numbers for 2006 were correctly stated in 2006. We will issue a formal correction during the day, but wanted you to be aware of it. There was no error in any of the 2007 results.

Now for the operating commentary, we will turn the call over to our President and Chief Executive Officer, Joe Morone.

Thank you, Michael. As always, good morning everyone -- as always, we will over the call with my commentary, the text of which we publish with release. Michael will follow with some amplifying comments, this time about the strength of our balance sheet and cash flow potential. And then we will turn to your questions.

We began 2007 was two tightly-connected objectives for the short-term to restore profits to the levels we experienced before the 2006 pricing disruption in the European PMC market and for the long-term, lay a sustainable foundation for our cash and growth strategy. By year's end, as reflected in our Q4 results, we have substantially achieved both objectives. We responded to the 2006 pricing disruption by initiating in Q3 2006 a deliberate, intensive, three-year process of restructuring and performance improvement initiatives. The announced shutdown of our forming plant in Montgomery, Alabama was the latest step in this process. By late 2009, we will have streamlined our manufacturing footprint in Europe and North America and expanded it dramatically in South America and Asia, reshaped and strengthened virtually every function in every business unit in every region of the world and fully implemented a shared services center in Europe, a unified comprehensive ERP system and a global procurement organization. This transformation process is on schedule, contributed to the improvement in profitability in Q4 and is the major reason that we remain optimistic about the prospects for strong cash flow generation in 2009.

It is not possible to understand our Q4 results, or those of any other quarter during this period of intense transformation, without considering the impact on net income of the cost of these initiatives, especially when comparing results to quarters preceding or following this period of transformation. For this reason, we have adopted the practice of itemizing these costs each quarter. In Q4 2007, these costs had the effect of reducing net income by $0.26 per share. Without the cost and discrete income tax adjustments, our net income would have been $0.49 per share. This compares favorably to $0.42 in Q4 2006 and more significantly to the $0.44 and $0.38 per share in the Q4s of '05 and '04, which preceded the European pricing disruption. Moreover, unlike the results in those earlier periods, the Q4 2007 results include a $0.08 per share loss in a very promising aerospace composites business.

In previous earnings releases, I talked about our desire to return to the profit levels of Q2 2006. Taking into account the factors of both, along with a seasonal effect on December PMC sales in North America, we have substantially achieved this objectives.

Turning to the individual business segments, in PMC, excluding the Q4 '06 effect of changes in contract terms with a major customer, Q4 '07 net sales increased by 6% and operating income increased by 7%. The topline performance was influenced by all of the now familiar trends -- sales growth in Asia and South America, fueled by rapidly growing markets; lower sales in North America, with a continuing shrinkage of the number of paper machines partially offset by market share gains resulting from our superior performance in the field; and higher sales in Europe, with the lower prices resulting from the '06 disruption more than offset by growth in volume. We have not seen any significant change in the underlying forces at work in the PMC market. The emerging markets in Asia and South America continue to grow, while the mature markets in North America and Western Europe continue to face topline pressure, a shrinking number of paper machines and continuing threat of competitive price pressure. This means that sustained growth in profit and cash generation in our core business will be driven not as it has been in the past, by market growth in these traditional markets, but by performance-based market share gains in those markets, growth in Asia and South America and, fundamentally, lower costs. This is precisely what drove PMC before and we expect more of the same in 2008.

Turning next to Albany Engineered Composites, which for this last quarter of the year is still included in the Applied Technologies segment, on the surface, AEC performed poorly in Q4, with an operating loss of $3 million, or $0.08 per share. But underneath the surface, we saw encouraging signs of progress, both in the steps being taken to turn the corner on profitability and increasing visibility about the long-term growth potential of the business. As I have discussed in previous earnings releases, the poor bottomline performance stems from the combination of the inefficiencies that accompany steep ramp ups in production in a still-small business, coupled with rapidly escalating expenditures in R&D and engineering.

In the second half of Q4, and again at the start of '08, we began to see sustained improvement in the performance parameters that drive production efficiency. I suggested in our Q3 '07 earnings release that AEC should turn profitable in the second half of 2008 and that still appears to be the case.

With each passing quarter, we develop a firmer appreciation of the growth potential of this business. In the Q3 2006 earnings release, I told investors that we thought AEC had the potential for at least 25% per annum growth for the next five years. Given the 2007 AEC sales of $30.5 million, this would make AEC a potential $150 million business by the middle of the next decade.

With an additional year of experience, we now view that estimates as overly conservative. In 2007 net sales grew 31% compared to 2006. For the next five years, we believe AEC has the potential to grow at least 35% per annum. But more importantly, we now believe that this business has potential -- and it's important to underscore the word potential at this point -- it has potential to be significantly larger than the $150 million enterprise that we envisioned a year ago, and it has the potential to become a second core business of the Company.

According to independent estimates, the total aerospace composites market will grow to around $25 billion in 2016. Of that $25 billion market, about $3 billion is addressable by our unique technology and a total of $13 billion is addressable by a combination of our unique capabilities and our more conventional composites capabilities. The aerospace composites market is being shaped by two major waves of growth. The current wave, just beginning, is being driven by the new generation of long haul aircraft, the Boeing 787 and the Airbus 380. Except for the landing gear braces that we are developing with Messier-Dowty and one other relatively small project, we are not participating in the 787 wave, as AEC started up far too late to participate in the critical development projects. Much of the short-term AEC growth results from participation on smaller platforms that have already been certified and are in production, like the Eclipse VLJ.

The second wave of growth, which hits early to mid next decade, is driven by the next generation single-aisle aircraft, the successor to the Boeing 737 and the Airbus A320. For these platforms, our timing is excellent. We've made good progress on positioning AEC to be a supplier of parts for the next generation engines for these new short haul aircraft and we are increasingly hopeful of participating in airframe applications, as well. It is this second wave of growth opportunities that is driving our rapidly-increasing expenditures in R&D and engineering. And it will be our performance in pursuit of the development opportunities created by this second wave that will dictate whether or not by the end of this decade we are viewing AEC as a healthy and an important part of the Albany portfolio of business, or as something altogether more significant than that. It is too early to tell, but we are encouraged by the progress we made in Q4 in the pursuit of second wave development contracts and partnerships.

As for the rest of the Applied Technologies segment, compared to Q4 '06, sales grew by 15% and operating income by 48%. Strong performance was driven by growth in power generation filtration business in China. Another highlight of the quarter was the successful start of our view Engineered Fabrics plant in Kaukauna, Wisconsin.

As we look to the prospects of this segment in 2008 and beyond, the key for us is the potential for sustained profitability and cash generation. For example, the Engineered Fabrics business, which has a mission of applying our permeable belts technology to process industries outside of the paper industry, has growth potential -- sustainable growth potential of about 5% per year and sustainable profit and cash generation potential comparable to PMC in its steady-state.

Albany Door Systems, our third business segment, had an outstanding Q4. Sales grew by 31% compared to Q4 '06 and reflecting the efforts to improve margins that have I have alluded to in previous earnings releases. Operating income more than doubled, growing by 127%. The results were driven by across-the-board topline strength in both product and aftermarket and in each region of the world.

Looking forward to 2008, we expect continued progress in the European aftermarket, growing momentum in North America as the consolidation of operations and product lines with R-Bac is completed and progress in laying the foundation for growth in China, where we are now establishing a stand-alone manufacturing facility that will produce our full range of products. Keep in mind that this is not a capital-intensive business. Growth is driven primarily by breadth in the performance of productline and strength of distribution channels. On both fronts, we expect good progress in '08. The only caution flag for this business in 2008 is the prospect of recession, which in the past has had a market effect on demand for High Performance Doors.

In sum, in Q4 2007 and, more generally, in 2007 overall, we accomplished our twin objectives of restoring near-term profitability while continuing to lay the long-term foundation for the cash and growth strategy. As for 2008, we expect more of the same -- continued improvement in profitability and continued internal transformation. The risks associated with pursuing the first while undergoing the second are magnified in the recessionary environment. But we remain confident, nonetheless, that by the second half of 2009, the transformation will be complete, the cash and growth strategy will be fully implemented and the results will be increasingly reflected in our financials. Michael?

As always, our objective is to provide our investors with as much clarity as possible, as is evident from the extensive level of detail provided in our release. Today I will add some comments regarding the balance sheet and cash flow. At the end of 2007, we had a total of $480 million of debt with an average remaining life of 5.2 years and cash, plus cash value of company-owned life insurance, totaling $117 million. That is net debt, as defined in our principal credit agreement, of $363 million. The average interest rate applicable to our total debt at the end of December was 4.28%. We have no significant refinancing requirements until 2011. Included in our debt was $116 million drawn on our $460 million revolving credit facility. The rate of interest we pay on borrowings under the revolving credit is based on our leverage ratio, defined in the agreement as our net debt divided by adjusted EBITDA.

Our leverage ratio at the end of the fourth quarter was 2.45 compared with 2.44 at the end of the third quarter. At that ratio, our interest rate is 100 basis points over LIBOR. This morning, three-month LIBOR is 3.07%.

Shifting next to cash flow, our net debt increased $17.8 million in the fourth quarter of 2007 and $93.8 million for the year. For the full-year 2007, after capital expenditures of $149.2 million, investments in SAP implementation and information technology of $16 million and paying dividends of $12.3 million, our net debt increased $93.8 million for the year. For the full-year 2008, we currently expect net cash use to be less than $25 million, assuming neither any acquisitions or serious economic recession.

Interest expense and net debt are expected to peak in the fourth quarter of 2008 and to decline significantly in 2009. Note that our capital expenditures of $149.2 million in 2007 were below the low end of the $160 million to $180 million range we had projected. And as a result, we are carrying forward into 2008 approximately $20 million to $25 million more than we had planned when we estimated the CapEx range for 2007 in our last earnings call.

Of the capital we spent in 2007, $117.5 million was for the Paper Machine Clothing segment, $13.5 million for Engineered Composites, $17.5 million for the remainder of the Applied Technologies segment and the balance for the Door Systems segment and other.

Capital expenditures in 2008 are expected to be around $140 million. This is higher than our prior estimate of around $110 million because of a higher carryover noted earlier and because attractive capital expenditure opportunities in our Engineered Composites business are higher than previously thought. Of the $140 million we plan to spend,100 to $110 million is for our Paper Machine Clothing business and over half of that amount is for our Asia and South American manufacturing capacity expansions. We expect to spend approximately 25 to $30 million for Albany Engineered Composites, with the balance of the expenditures going to the remainder of the Applied Technologies segment and to the Door business.

The large investment in Engineered Composites in 2008 is associated with four activities -- first, a major expansion of our manufacturing plant in Boerne, Texas; second, key equipment to support the production ramp up required for the Messier-Dowty composite landing gear brace program for the Boeing 787 program; third, completion of the expansion of the Rochester, New Hampshire composites facility, which was largely completed in 2007; and fourth, key equipment at both locations to support growth programs with our principal customers.

Joe mentioned that we remained optimistic about the prospects for strong cash flow generation in 2009. Just a few comments about the transition from substantial cash use in 2007 to moderate use in 2008 to substantial cash generation in 2009. Upon completion of the currently planned $140 million capital expenditures in 2008, CapEx is expected to decline to around $65 million in 2009. The $65 million estimated CapEx for 2009 is likely to include about 35 to $40 million for PMC, with the balance to Applied Technologies and Door Systems segments. Depreciation and amortization in 2009 are expected to total approximately $71 million and $10 million, respectively.

We continue to the optimistic about the prospects for strong cash flow generation in 2009 and beyond. The business outlook and actions we have taken will certainly help, as will a substantial decline in PMC capital expenditures next year, along with the potential to reduce working capital as we settle into our now fewer and lower-cost manufacturing facilities.

Art, that completes our formal presentation. We would be happy to take any questions at this time.

(OPERATOR INSTRUCTIONS) John Emrich, Ironworks Capital.

Starting with kind of the pro forma operating income margin, if you will, for the quarter, we've got -- in there -- I took out the $10 million of the expenses that you called out, and we've also got a three million -- I'm trying to figure of the differences between this quarter and two Decembers and the difference between now and June '06. You've got a $3 million pretax loss from the composite (technical difficulty) business, correct?

Correct.

And you also have how much in the way of expensed SAP implementation was there in the quarter, ballpark?

SAP is part of the performance improvement initiatives listed on page four -- on the table three of page four, John.

So part of the 10 that I've already called out?

No.

No?

Yes, it is.

Okay, so just in general, when I was thinking of returning to these Q2 '06 profit levels by the end of this quarter, I was looking at a gross margin of 40% and an operating margin of over 11% back then. And what you are saying is we are there, accepting for the two things, the seasonality of PMC and the operating loss in composite. Am I missing anything else that I should be --?

That's it.

That's it, right?

That's right.

So come June of '06 --

(multiple speakers) that's about $0.63 per share.

Right, so coming to June of '08 -- excuse me -- we should be looking at a margin structure like that, like we had I can back in June of '06 -- accepting the composite business and the SAP expense?

At the operating income level, John.

Yes, I have noticed that. It looks like a gross margin is much lower, but you've actually taken out more, it appears, SG&A expense over the last four quarters, which is not what I would have guessed. But it is that really one --

I think overtime as we complete this three-year march we are on, we should see improvements in gross margin. We should see it reductions in SG&A and we should see improvements on the bottomline. But you have to also remember that there is a big difference in our business mix between late '05 early '06 and where we will be next year. And that has been a very explicit part of the story is that the growth in the emerging businesses is certainly a piece of what leads to the steady improvement.

And on that, Joe, I mean, Michael, I remember even two years ago you thinking that long term the return on capital of those nascent businesses -- and now specifically composites -- would actually -- they would have a higher return on capital profile than the PMC business, even if -- yes, still believe that?

Yes, and the way we break it down, we use PMC as a benchmark. So when we look at Doors, we start at one end, we see significantly higher growth, lower profitability, positive cash flow generation, barring a recession, but lower than PMC. But on the other hand, much lower capital intensity, so pretty --

Higher return on capital.

Right, exactly, and then lastly, given your $25 million or less net cash use in '08 and given your CapEx forecast, and I'm guessing maybe even a dividend, you're looking at cash flow from operations of 115 to $125 million in '08 to get to that net cash usage number?

We will let you do your own math.

Okay, thank you.

Mark Connelly, Credit Suisse.

Joe, a couple of things on PMC. If we look at demand in Europe right now -- not for Albany's business, but overall -- would you characterize that market as stable or slipping? And the second half of the question is if we do see the European market start to slide, what would you expect would happen next? You've strengthened your European position quite a lot, but do you have a sense that customers in Europe would shut capacity quickly and who's going to be more exposed to that? Is it going to be you or is going to be the other players?

That's a question we spend a lot of time on and I think you're seeing the same trends we are seeing. The combination of exchange rates, on the one hand, hurting euro exports and the growth of the Chinese paper -- Asian paper industry, on the other, wiping out that export market for West European papermakers puts a real squeeze on them. And we think the most likely outcome is reductions in capacity in Europe. And the reason we've been on a three-year transformation process rather than a year and a half is because that pricing disruption in '06 in PMC in Western Europe was, for us, a wake-up call to much larger structural issues in Europe and also in North America. And that is what I tried to say on the call. These are mature markets. We are going to continue to see topline pressure. We are expecting to continue to see top line pressure in PMC in both North America and Western Europe. We will continue to see reductions in paper machine capacity. What we've seen in North America, we are expecting to see in West Europe.

And our whole three-year transformation process is based on that presumption. So we are anticipating more of the same, which means the way we compete globally is we have to gain share based on performance in West Europe and North America. We have to grow with the growing markets in South America and Asia and then we have to race to get lower cost. And we are on all three paths. We've pretty much blown by the short-term target of restoring profitability from those '06 price disruptions. But we are not stopping there and we are far from the finish line of our internal transformation precisely because we expect more pressure to come in West Europe.

Is your European market share higher or lower than it was before the disruption?

We don't typically disclose. If you look at this in terms of volume, it's higher.

You also asked a question about what you are expecting with regard to the paper companies' capacity.

I'm sorry. If I didn't make that clear, Mark, what I was referring to was our expectation that we will see more consolidation in West Europe among some of the leading paper companies. And we built over the past year and a half our strategy with that expectation in mind. So we think we are prepared for it.

Very good. One question on the Door business. Obviously you did an acquisition, you have reshuffled management fairly substantially. How much of the strength that we are seeing now do you think relates to the reorganization versus just latent economic strength?

Most of the strength in Q4, a lot of that strength was Europe. We haven't yet seen the full effects of the combination in North America and that is one of the reasons we are optimistic about '08.

Okay, so you may have a little bit of a tailwind even as the economic slide slows down?

We have tailwind in all three sectors of the world, but, again, this -- you've seen what has happened before to this business in a recession and that is -- we have to keep that caveat in front of investors.

Okay, and just two more questions, Joe. First, on Applied Technologies, you talk about the second half of '08 getting to profitable. How should we thinking about Applied Technologies' margins across, say, the next two years? Should we be thinking about a gradual recovery or should we be thinking about a recovery, but a continued lumpy up and down margin quarter to quarter?

You talking about the composites business, which --

Primarily, yes.

-- which we do intend to break out as a separate segment beginning with Q1 of '08, which should help you and our investors track this a little more clearly. I think lumpy is a good word just because of the -- I think that is a great characterization due to the nature of this business. We will have quarters where year-to-year sales will be up 10% and then the next quarter, it might be up 50%. And when you get that kind of fluctuation at the topline, you clearly get, as you characterize it, lumpiness on the bottomline and it is a function of how shipments get released to customers. If a major customer, like an Eclipse, slows down its deliveries, then our deliveries get slowed down and our sales get slowed down and vice versa. If we get a sudden surge of requirements for shipping landing gear braces for Boeing -- to Messier-Dowty and then to Boeing, then we will see that kind of lumpiness. I think you've got it right.

Related to that, if we look at the delays we've been seeing across several aerospace platforms, at the end of the day you guys weren't really in a meaningful factor in some of these big ones that are in the headlines right now. But when you look at the delays in aggregate, is this good for you or bad for you that these projects are getting delayed?

It really helps. I mean, if you look at what is dragging down income in this business today, there are two factors. The first is production inefficiencies in a small business, basically the plant down in Boerne, Texas, where they have had a huge surge in shipment requests. And just trying to get above a learning curve overnight is just a fundamentally-inefficient process. So anything that buys us time, it is not loss of sales. It is just rescheduling of sales a little bit farther out. That gives us more time to get up the learning curve and get through the inefficiencies. So that is one variable that is clearly affected in a good way by the sort of delays that we've read about with Boeing, for example.

The other big factor that is affecting profitability is we are ramping up as rapidly as we can our engineering and R&D capability in this business in order to take advantage of all of the second wave development opportunities that are coming our way. That is not going to change. We are going to continue to invest heavily, spend heavily in R&D and engineering. And that isn't as directly affected by the delays. In fact, it is not affected at all.

One financial question for you, Michael. Originally -- or prior to your comments, I had moderately front loaded my CapEx assumptions for 2008 just a little bit. I'm just wondering with the shift of CapEx from '07 into '08 whether there is more front loading now or what.

There clearly is more front loading now. You're absolutely spot on.

Thanks very much.

Arnie Ursaner, CJS Securities.

Good morning. A couple of starting questions. Geographic trends in PMC for 4Q, please, by region.

In terms of sales, Arnie, flat to down in North America.

Can you quantify that a little more than just flat to down, because you have in the past?

We have?

I think so.

It is down two to 3% North America. It is up in West Europe pretty sharply. And in our emerging markets, nice growth, a combination of South America and Asia.

But, again, no quantification on any of those?

We would rather not.

Okay on Albany Door, you clearly already indicated that the majority of the growth was from Europe. I know you would prefer probably not to separate out organic growth versus acquisition growth, but to the extent most of it was international, would it be fair to say that nearly all of the growth was organic?

Yes.

Okay. Can you break out EFC growth, specifically, or the EFC performance specifically? That's half of Applied Tech. What did it do in the quarter?

EF, Engineered Fabrics?

Yes.

Was -- as opposed to the filtration and prime [loss] businesses.

Correct.

That was basically flat.

Okay. The rest of my questions I think are going to relate to aerospace, so for the first time, you've actually disclosed a specific number, an operating loss for AEC in the quarter. So now given that -- this is going to lead to a whole series of questions -- you also indicated you intend to separate it out anyway by Q1, so -- I'm going to ask a series of questions related to that. You mentioned for the year revenue was up 31%. You mentioned in Q3 that it had been up 46%. Can you give us an actual Q4 revenue this year and a Q4 revenue last year?

I think that AEC sales Q4 to Q4 was up 17%. We can get you a more precise number, but I think that that's -- 16%

Do we have an actual Q4 revenue for AEC?

Yes, I think I mentioned it in the release, that for the year it was $30 million.

Right, what was it for Q4?

Eight -- $8.1 million.

Okay. And you mentioned it lost $3 million this year, operating loss of $3 million this year. What was its operating performance last year in Q4?

You know, Arnie, you're asking us for information that we intend to start publishing in Q1 '08 for all the reasons that you're asking.

Okay. Joe, you're obviously -- we've talked about and you've spoken about your general view being conservative about the business. By shifting your view to a 35% per annum growth compounded rate, are you basing that on what you have in hand or are you basing that on future development programs you hope to win or hope to develop?

We base it on a very careful analysis of the projects that we have in hand.

Okay, maybe I will ask it a slightly different way, in your prepared remarks you speak about being involved in next generation engines, so perhaps you could expand what it is you're doing there. But then you also speak to an opportunity in airframe applications. Are both embedded in this new sort of --

The whole point of the wave one, wave two timing, Arnie, is that 35% per annum for the next five years is pre wave two. There is two simultaneous waves of activity going on in our business. One is rapid, short-term growth to meet selling into existing aerospace platforms. And rapid expansion of development projects to position us for the next big wave of aerospace growth, which kicks in after the five-year period.

And that 35% growth rate, Arnie, we have included over 80% of what is in that growth rate is absolutely totally in hand. And we've put a very, very, very conservative estimate in connection with the things that are in-process, but not contractual at this point. So I think we are feeling very, very comfortable with that number.

You also mentioned, again, you would be carving out the information on the subsidiary or providing the information on the subsidiary. Is part of that -- Joe, I know you've been focused on shareholder value -- is part of your reason for giving out lots of additional information a possibility that you may do a carve-out IPO or some other monetization transaction to enhance --

You're ahead of us, Arnie. At this point, we're focused on execution. We do think this is, as I tried to make clear, we think this is a potentially very important part of our future, which does, as we execute and fulfill some of these projections, create all kind of options for us. And if you know the way Michael and I think and our Board thinks, we consider these options all the time, but right now, all the focus is on execution. It's way premature to think about anything else right now.

Final question, if I can, on Albany Door, you indicated in your release you are going to be building a manufacturing facility in China. When will that be operational? What is the capacity of that plant and also as you're focusing on Albany Door, can you give us an update on your whole aftermarket strategy and where we stand there?

The plant will be operational this year. We haven't really gotten into capacity disclosures. We really don't want to at this point. The aftermarket -- but suffice it to say that it is a substantial expansion of our production capability in the Pacific region.

The aftermarket business is proving to be appealing and profitable in Europe, where there appear to be real opportunities for forward integration. It does not appear to be a serious opportunity in North America, where, for purely historical reasons, the channels of distribution are independently owned by, in some cases, some very large third party distributors. So in North America, we really need to work with the channels. And it's one of the reasons why breadth of productline is so important and why that R-Bac acquisition was so important to us.

In Europe there is more of a tradition of the product supplier forward integrating into the distribution channel and owning the distribution channel. So there is much more opportunity there. And that is what we are seeing. And that is how our strategy is progressing, is to pursue the aftermarket with vigor in Europe, to not do so in North America. Unclear at this point on how it will play out in Asia because that market is still very young.

Just one clarification. Your potential cost savings for '08 is now higher than it has been. Does that reflect Montgomery, Alabama? Is that the difference between the two numbers?

No, Arnie, the Montgomery, Alabama is not in those numbers.

So if we were to add that since it is now announced, how much -- what do you think that incremental savings could move from?

We haven't released those numbers yet, and when we will, to be -- you should be prudent and assume that those savings, because of the inventory effects, would play out in '09.

Thank you very much.

John Emrich, Ironworks Capital.

Three quick ones, please. The tax rate used in the $1.20 calculation, is it closer to the 31% for '08 or the 24% for '07?

It's in between the two tax rates, it is closer to the 24%

And is not the -- I guess why would you not use the expected tax rate for '08 in that, since that is where we are going to see it, in that estimate that you provided us? I thought the '08 tax rate was going to be closer to the low 30s.

The expected rate.

We did use 25% in that estimate.

Is the expected tax rate then for '08 now into mid-20s and not the low 30s?

It is expected at 25%, John.

For '08.

Correct.

Wow, okay. And with China, what is the progression of serving Asia out of Asia and then, eventually, someday serving Europe out of Asia or other parts of the world as well?

Well, what we've talked about publicly is that our first priority is to have significantly-reduced shipments from outside of Asia from Europe, for example, into Asia. And at the same time to position ourselves to grow with Asia. Those are the top priorities.

Okay so we are not yet talking about the potential of serving Europe out of Asia?

We haven't (multiple speakers) publicly, John.

Okay, and lastly, what is the run rate now of the percentage of total revenue that is international, outside North America, for the Company?

63%

63%. Thank you very much.

(OPERATOR INSTRUCTIONS) Andy Singer, BlackRock.

The Doors business operating margin looked like it was around 11.5%, which is the best we've seen in a long time. Is that something we can continue into '08?

Barring recession, there is a lot of momentum in that business, so yes.

Great.

But just so you understand the potential that a recession can have, new door sales are, for the customer, a capital investment -- capital expenditure and if we hit a hard recession, then they will cut back on CapEx.

Sure, and in the PMC -- sorry, go ahead.

On the other hand, you would expect that they would continue to need to repair and service the doors and so that is one of the beauties of having a higher percentage -- a higher volume of sales in the aftermarket.

Okay, and the PMC earnings, were China startup costs included as a -- in those restructuring numbers or were they not included?

In the performance improvement.

Okay.

Not restructuring

Okay, great. So the margin softness, a lot of it was due to seasonality?

There was an effect that we saw for the second time in a row in North America in the second half of December where mills didn't shut down, they just -- paper mills -- they just ran through the year. And since they didn't shut down, they didn't put on new PMC. They ran the PMC longer and that is the second time we've seen that holiday season effect second half of December. And it was a clear seasonal effect.

We are not yet certain whether this is going to happen every year, but it has happened the last two. And we are assuming -- we are building into our models that it will be a continuing effect. And for people who have been following PMC for years and years, Q4 used to be a strong quarter. Because of this effect, now, now that seems to have flipped a bit.

Okay, thanks.

If there are no more questions, thank you all for participating on the call once more --

We do have one in the queue, I'm sorry. The speaker is Ned Borland, Next Generation, he is the last question in queue. Please go ahead.

Just following up on the savings rate question, if it is not Alabama that guess you to 120 in savings EPS, what is it? And also the press release sort of reads that you're going to be recognizing that faster than by 4Q '08, which I think was the last timeline when you were going to get to the $1.00 a share run rate. Just wondering if I am on track there.

You're on track. It's just that as we go through this process of intense change, there are more opportunities rolling out for performance improvement. And as you know, we try as best we can to be conservative in the numbers we give you. So yes, the $1.20 is from previously-announced activities. There is not anything new in there. And the effect -- effectively, that $1.20,$0.50, or $0.125 per quarter, was being felt by the end of 2007, which leaves $0.70 and a quarterly effect of an incremental $0.17 and that incremental $0.17 should be apparent in Q1.

Okay, that's all I had. Thanks.

$0.17 per quarter effect.

Okay.

There are no further questions, speakers.

Remember, Ned, that doesn't mean you just add $0.17 to your projection for earnings. There's offsetting effects, inflation (multiple speakers)

Right.

Once again, there is no one else in queue at this time.

Thanks, again. I know Michael and I will be speaking to many of you in the various (technical difficulty)

Ladies and gentlemen, this conference will be available for replay on the Albany International website. That does conclude your conference for today. Thank you for your participation and thank you for using AT&T Executive Teleconference Service. You may now disconnect.